Global Islamic Finance and Impact Investing Platform (GIFIIP)
On 25 September 2015, world leaders adopted the 2030 Agenda for Sustainable Development. The new agenda defines global sustainable development priorities and aspirations for 2030 and seeks to mobilize global efforts around 17 Sustainable Development Goals (SDGs) for people, planet, peace and prosperity. The scale and ambition of the SDGs require massive financial and technical resources – 5 to 7 trillion US dollars annually based on UNCTAD World Investment Report 2014.
Islamic finance can be a strong and non-traditional source of financing for the SDGs. Given its emphasis on risk-sharing, linkages to real economic activities, partnership-based and equity-focused approaches, widened geographic reach and the rapid expansion of its global assets in Muslim and non-Muslim countries, Islamic finance can serve as a potent and yet untapped source to finance the SDGs.
Another important source of funding for the SDGs is impact investing. The term was originally coined by the Rockefeller Foundation in 2007 to define investments that generate a measurable and beneficial social or environmental impact alongside a financial return on investment.
With their rigorous moral and social criteria and emphasis on business-society relations, the principles of Islamic finance and impact investing are compatible with one another. The two industries resemble each other in a number of ways:
- Islamic financing and Impact Investing are value-based investment structures.
- Both Islamic finance and impact investing share a broader understanding of the relationship between business and society, one which is centered on advancing human wellbeing.
- Both sectors help build inclusive financial systems which actively integrate the global population that is either directly or indirectly kept out of the formal financial sectors.
These similarities suggest that bridging the two sectors might create a promising avenue to effectively respond to the growing challenges related to development financing, foster inclusive economic growth and support the implementation of the Agenda 2030.
The Global Islamic Finance and Impact Investing Platform is established by the Islamic Development Bank (IDB) and UNDP’s Istanbul International Center for Private Sector in Development (IICPSD) on 5 May 2016, in Jakarta. Engaging the private sector, governments, and key stakeholders operating in the Islamic finance and impact investing markets, the platform aims to promote market-based solutions to sustainable development challenges by creating a collaborative working space among these actors.
Value-Added for Impact Investing
- Expanding new sources of finance: With an estimated US$2.0 trillion market and projected growth of 17% per annum, the participation of Islamic financiers in the impact investing space may provide new sources of finance for impact investments.
- Developing new markets: The last wave of the annual impact investing survey of JP Morgan and GIIN in 2015 suggest that Middle East and North Africa region was nearly absent. Bridging Islamic finance and impact investing may leverage representation and investor interest through the development of innovative Islamic finance instruments for impact enterprises and impact funds in MENA [e.g. Islamic crowdfunding, Sustainable and Responsible Investment (SRI) Sukuk]
- Enlarging the impact investing tools: Engaging Islamic finance in impact investing requires developing tools and instruments to converge these two industries without compromising Sharia compliance. This drives the development of new investment tools and products for impact investors to allow for engagement in Muslim majority markets.
Value-Added for Islamic Finance
- From negative screening to positive impact: Employing the principles of impact investing offers Islamic financiers a clear methodology for assessing the social and environmental impacts of financial activity.
- Expanding the reach of Islamic finance GIIN’s ImpactBase, the directory of the global network and inventory of the products, has 2068 subscribers and 375 funds and products. Bridging Islamic finance with impact investing further expands the market of Islamic finance by unleashing access towards a broader set of institutional investors beyond OIC member countries.
- Advancing global recognition: Impact investing is widely recognized by the G8, OECD, the EU and acknowledged by the Addis Ababa Action Agenda as an alternative global development financing instrument. Bridging Islamic finance with impact investing positions Islamic finance among top global development financing instruments, thereby advancing its global recognition.
IICPSD and IDB have defined a three pillar strategy for the advancement of the Global Islamic Finance and Impact Investing Platform
- Conceptualization & Capacity Building: Maintain a network of Islamic finance impact investors to foster an Islamic finance and impact investing ecosystem. Knowledge products, tools and data will aim to equip its members from the impact investment industry and the Islamic finance industry with the necessary know-how for the establishment and growth of this new niche industry.
- Advocacy & Inter-industry Collaboration: Engage in advocacy to raise awareness on the compatibility of Islamic finance and impact investing and their capacity to implement the SDGs, and build bridges between Islamic finance and impact investing. The Platform will accomplish this by targeted advocacy work in large scale global Islamic finance and Impact investing conferences.
- Deal Sourcing & Matchmaking: Play a matchmaking role between investors and other players in the ecosystem such as business incubators, development organizations and most importantly, inclusive business ventures seeking capital. Such functions significantly reduce the time, effort and costs involved in due diligence and helps overcome information barriers to investors. The platform will also convene and increase finance opportunities amongst relevant industries.
Position Islamic finance and impact investing as a leading enabler of global SDG implementation through private sector engagement.
The platform will strategize and nurture an Islamic finance and impact investing business ecosystem through:
- developing a spectrum of Sharia compliant impact investing tools and instruments, and
- improving the access of impact enterprises to Islamic funding